A recent New Jersey appellate court case, Bernard and Jeanne Adler v. SAVE, a Friend to Homeless Animals, serves to remind nonprofits that restricted gifts need to be treated gingerly. The case involves a New Jersey couple who donated $50,000 to a charity with the understanding that it would be applied to the costs of expanding an animal shelter in their community.
Specifically, the couple wanted their donation to pay for two rooms to house larger dogs and older cats, which are often unadoptable. Additionally, the fundraising brochure the couple received promised a naming opportunity.
What happened, however, was that the animal shelter merged with another, similar organization. It then announced that it would build a smaller new facility in a different location. No specific area for the long-term care of larger dogs or older cats was planned. Nor was any mention of the donors’ names planned. The couple filed suit against the charity. And the court ruled that the organization must return the $50,000 gift.
Restricted gifts, by definition, come with strings attached — many donors want to make sure that their money is spent according to their wishes. By accepting the gift, your charity is agreeing to meet certain conditions.
If you’re unable to follow the donors’ original intent, you have two choices: You can either ask the donors what they’d like your organization to do with the money since you can’t meet their conditions, or you can return the money to them.
A policy in place
Having a gift acceptance policy is one way to help determine whether your organization should accept a restricted gift in the first place. It also can help prevent future problems with the restricted gift’s donors or their heirs. Your policy and related procedures should describe how:
- Your organization will decide if it will accept a gift with restrictions, and if there should be a minimum amount — for example, $50,000 — for a permanently restricted gift
- A potential gift will be evaluated for compliance with your organization’s stated mission, and who will be responsible for the evaluation
- Your organization will communicate with the donor, keeping in mind that today’s donors typically expect some involvement and personal attention
- Certain noncash gifts (for example, closely held stock or other business interests, land with environmental issues, and art) may be deemed unacceptable
The policy also should state that your nonprofit won’t provide tax or legal advice to the donor — that they should retain personal advisors. And it should specify that negotiations will ensue if the donor’s conditions are at odds with your assessment of how the money could be used, but a compromise is considered possible.
Sometimes, though, negotiations may reach an impasse. Consider this Florida case: A state university accepted an $11 million gift from one of its chemistry professors who had developed a synthetic cancer drug. The gift was earmarked for a new chemistry building with dedicated facilities for synthetic organic chemistry.
But the university eventually found the donor’s restrictions too expensive and limiting. And most of its chemistry faculty wanted a building that could accommodate all chemistry disciplines. So, following the filing of a lawsuit, the money was returned to the donor.
Saying “no, thanks”
Although no nonprofit likes to say “no” to a donation, doing just that might spare your organization legal trouble and many hours of negotiations. Accept a restricted gift very carefully.
If you would like some assistance in creating a gift acceptance policy or in finding other resources, contact us – we are happy to help.